How Does Life Insurance Work for People Over 50?

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Buying life insurance is never easy. Getting quotes, comparing the different policies, filling out the application, having a medical exam—it’s complex and time-consuming for everyone. But that’s especially true for people over age 50. 

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Life insurance buyers over 50 often face challenges that younger buyers don’t. They frequently have medical conditions they didn’t have a decade earlier, like diabetes, high blood pressure, and obesity, to name just a few. This makes insurers less likely to issue them a policy; and if they do, it will be for a much higher rate than the standard rate.

Many 50-year-olds don’t approach life insurance companies and get quotes because they think they’re too old to apply and be approved for a policy. Though it is more difficult for them, it can be done.

In this article, we’ll help people over 50 decide if it’s worth having life insurance or not, what types of policies are available for them, what a policy costs, the best companies to approach, and more.

When Is Life Insurance Worth It If You’re Over 50?

Not everyone needs life insurance when they’re over 50 years of age. Often, mortgages have been paid off, the kids have graduated from college and moved into their own places, retirement has been funded through a 401(k), IRA, or pension plan, and savings are adequate for the person responsible for funeral costs.

You may be thinking, “I wish that described me!” It is an enviable position that not everyone is in, which is why there are many people who buy life insurance when they’re over 50. The home may have a second mortgage or have been refinanced for 30 years, kids may still be living at home, bank accounts may not have much money in them, or retirement accounts may not be as large as hoped for.

If this is the scenario that describes you, take heart—you’re not alone. When it comes to accumulating enough savings and retirement funds to retire comfortably, only 36% of Americans think they’re prepared, according to an article on CNBC.com. This alone is a good reason to own life insurance over 50.

It’s also advisable to have life insurance over 50 if anyone is financially dependent on you. If spouses, children in college, children with special needs, elderly parents, or business partners will suffer financial hardship when you die, seriously consider getting a new policy. 

Having liquidity for estate taxes is another good reason to have life insurance in your financial portfolio. Depending upon the size of your estate, your heirs can have to pay as much as 50% of your estate’s value to the IRS in death taxes.

If they don’t have the cash, they’ll have to sell assets you may have worked a lifetime to accumulate, like real estate or a business. Life insurance can provide your family with the cash needed to pay the estate taxes so assets can be preserved, not sold.

If you don’t have enough money in savings to pay for burial expenses, life insurance will provide the funds for that, which can easily exceed $10,000 for all of your final expenses, such as funeral and burial expenses.

Life insurance over 50 is also worth it if you want to leave a legacy behind when you die. For example, you may have an alma mater you’d like to leave money to or a medical institution that helped you or a family member when you were in critical condition. Leaving them a life insurance death benefit is a nice way to say, “Thank you.”

Funding a grandchild’s college education is also a benefit of having a life insurance policy when you’re over 50. Your children, their parents, may have financial obligations that prevent them from paying for college for the grandkids.

Finally, if you just want to leave your loved ones a nice monetary gift when you die, it’s worth it to have life insurance if you don’t have enough for them in savings or a retirement fund.

When Is Life Insurance NOT Worth It If You’re Over 50?

Life insurance is not worth it under several circumstances.

First, it’s not worth continuing to pay on a policy if you have amassed enough money in your retirement account that your spouse can comfortably live on when you die.

It’s also not worth it if you’re over 50, are unmarried, and have no dependents. As long as you have enough money to pay for final expenses and don’t want to leave someone a cash gift when you die, there would be no reason to have life insurance.

What Types of Life Insurance Are Available for People Over 50?

There are three types of life insurance available for people over 50: term life insurance, whole life insurance, and burial insurance. Let’s look at all three.

Term life insurance

Term life insurance is temporary life insurance, and when you’re younger, it’s the most affordable type of life insurance to buy. But that’s not so for older people. Depending upon the life insurance company, rates for term life can be prohibitive for people over age 50, and some companies won’t issue a term policy to someone over age 65. 

For example, a premium for a 35-year-old male with a face amount of $100,000 might pay $25 a month for a 10-year level term life insurance policy, while a 50-year-old male might pay $225 for that same policy (rates vary from insurer to insurer).

It’s also important to note that term life insurance premiums can be increased, which can be a real problem if the newer rates aren’t affordable and you end up without any life insurance coverage.

Whole life insurance

Whole Life Insurance, also called “permanent life insurance,” is much more expensive than term insurance when you’re in your 20s through your 40s, but not as much when you’re in your 50s through your 70s. This can make whole life insurance a better choice for you later in life because the premiums never go up, and you can keep the policy in force your entire life, as long as the premiums are paid.

Whole life also accumulates cash value, which accumulates over the years and can be withdrawn or borrowed if you need extra money for your monthly living expenses. You can also surrender a whole life policy (give it back to the insurer) later on in life and get some of your money back. 

Burial insurance

Many people over age 50 buy burial insurance, also called “final expense insurance.” Its purpose is exactly what it sounds like: the life insurance policy’s death benefit pays for burial expenses. These policies are not intended to pay off large expenses, like mortgages or college loans. The maximum face amount companies will issue is $50,000, though most companies top out at $25,000. 

Burial insurance is very popular with people over 50 because you can get approved for it even if you have pre-existing conditions that prevented you from getting term life or whole life insurance.

There are two types of burial insurance—simplified issue life insurance and guaranteed issue life insurance:

  • Simplified issue life insurance: Policies are issued based on a limited number of medical questions on the application. The questions concern major illnesses, such as cancer, heart attack, stroke, diabetes, etc. However, there is no medical examination required, and policies are often issued in just days.
  • Guaranteed issue life insurance: This is the most expensive type of insurance for people over 50. It’s so expensive because the life insurance company will accept your application and issue your coverage regardless of your medical history. No medical questions are asked, no medical exam is required, and no doctor’s records will be ordered.

One caveat with burial insurance: the full death benefit is not payable to your beneficiary until you’ve had the policy in force for two years. Up until then, only a portion of the death benefit is paid out (called a “graded death benefit”).

How Much Does Life Insurance Typically Cost for Someone Over 50?

Life insurance for people over 50 can be quite pricey. As shown above when we talked about term life insurance, there is a significant difference in price for a 35-year-old buying life insurance and a 50-year-old. The difference in premiums grows more every year and can be cost-prohibitive for many people after they retire and are on a fixed income.

How Do People Know If They Should Purchase Life Insurance If They’re Over 50?

You’ll know if you should purchase life insurance when you’re over age 50 in a couple of ways.

First, after reviewing your financial situation, you’ll know whether or not your spouse and other loved ones are going to need to replace your income when you pass away. Whether it be active income from working or passive income from Social Security, not having your check to pay the bills every month could harm them financially. Receiving a check from the life insurance policy you bought can remove a lot of stress and financial pressure from them. 

The second way you know is a bit more subjective: the amount of peace of mind you have when thinking about the financial security of your loved ones. If you feel anxious when thinking about their financial situation when you die, buying life insurance can relieve that pressure from you.

What Are Popular, National Life Insurance Companies for Seniors Over 50?

Depending on who you ask and which website you visit, you’re going to find a lot of different opinions on the best life insurance companies for seniors over 50. Many of the individuals and websites offering you guidance are biased because they receive a commission from the life insurance companies they recommend.

One of the more impartial websites to learn about popular, high-quality life insurers for seniors is Investopedia. Based on their research, here are their top five:

  • Best overall: Mutual of Omaha
  • Best burial/final expense insurance: AIG
  • Best term life insurance: Haven Life Insurance Agency
  • Best indexed (permanent) life insurance: Transamerica
  • Best for a quick decision: Fidelity Life

Tips for Buying Life Insurance for People Over 50

If you’re over 50 and you’re going to buy life insurance, you’re in for a few not-so-pleasant surprises, such as rates and the amount of coverage you can get. Here are a couple of tips to help alleviate some of the stress you’ll probably experience.

First, work with an independent insurance broker. These brokers are able to get you quotes from many different life insurance companies, unlike “captive agents” who only represent one company.

Second, buy as soon as you can. Every day you wait, you stand the chance of getting ill and then being unable to get insured at standard rates.

Alternatives to Life Insurance for People Over 50?

If you want to ensure the financial stability of the people you leave behind, there are several alternatives.

Annuities

With annuities, you deposit a lump sum of money into an account, and you’ll receive a fixed amount of income each month (a return of your purchase price plus interest). Even if you outlive the value of the annuity based on what your lump-sum deposit was, you’ll still receive an income for life.

When you die, your beneficiary will receive a reduced payment for the rest of their life. If you have a substantial amount of money to create a large monthly payout, an annuity can replace life insurance.

Retirement accounts

Many people rely on their retirement accounts to provide money to their heirs when they die instead of buying life insurance. They don’t take Social Security until they’re 70, giving them the highest monthly payout possible. During this waiting period, their retirement account supplements their income.

When they die, their beneficiary will still receive a Social Security payment each month. In addition, any money left in the retirement account would go to the beneficiary.

Ask a Financial Planner for Help

A financial planner can be a great asset in helping you find the best life insurance policy and the right amount of life insurance. They can also help you with alternatives to life insurance if you decide to pursue that course of action. It may cost you a small fee to get some professional guidance from a planner, but it will be well worth it for the financial security of your loved ones and your peace of mind.

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